Revlon Fails to Rev Up

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Revlon (NYS: REV) , the global cosmetics and personal care products company, came out with its third-quarter results with higher revenues but flat profits. Let's take a closer look at what happened.

Not revving up
Net sales for the quarter increased by 5.7% to $337.2 million. But if you exclude foreign currency fluctuations that added $6.8 million, net sales actually increased by only 3.6%.

That increase was mainly because of the inclusion of Sinful Colors, one of Revlon's latest acquisitions, coupled with higher net sales in Revlon color cosmetics and Revlon ColorSilk hair color. However, these increases were in part offset by lower sales in Venezuela after a fire at Revlon's local facility in June.

Peers such as Avon (NYS: AVP) also witnessed similar growth in sales, which were up by 5% to $2.7 billion. However, net profits were flat at $164 million. Procter & Gamble's (NYS: PG) beauty division also experienced 9% revenue growth but lower net income over the same period last year.

Other competitors have seen both top- and bottom-line improvements. Elizabeth Arden (NAS: RDEN) saw its revenues move up by 7% and its net income almost double to $9.2 million on the back of strong international sales. Also, Estee Lauder (NYS: EL) was up with third-quarter revenues at $2.5 billion, up by an impressive 18% because of broad-based top-line growth across all categories of its products.

Coming back to Revlon, a breakdown by region showed net sales in the United States at $184.7 million, an increase of 10.8%, mainly caused by the acquisition of Sinful Colors and higher sales in color cosmetics and hair color products. Sales in Asia Pacific, on the other hand, increased slower, only clocking a 6.4% increase.

Canada and EMEA countries (Europe, Middle East, and Africa) saw net sales decrease 6.8%, while Latin America saw sales take a 12.6% dip. This was mainly because of a fire in June that ravaged a Venezuelan facility.

Venezuela fire
The company's production facility in Venezuela was destroyed in the fire. But there's no reason to panic, as Venezuelan operations form just 3% of the company's total annual net sales. But as of now, Venezuelan operations have not completely resumed.

In the time after the accident through September, Revlon suffered losses of $11 million related to the fire. That amount is composed by an impairment loss to the tune of $4.9 million in the second quarter of 2011 and losses due to interruption of business, costs incurred, and loss of profits.

But the good news is that Revlon has property and business interruption insurance, and has received $19.7 million so far in insurance claims. But it should be noted that the final amount and timing of the insurance recovery cannot be determined right now.

Firing up the brand
On the brighter side, the company started a fire of a different kind with the announcement of hiring Hollywood actresses Emma Stone and Olivia Wilde as global brand ambassadors. According to the company, the Revlon woman is characterized by these actresses who are talented, glamorous, confident and bold, and would help build a connection between Revlon and its consumers.

Cosmetics in lackluster
Consumer confidence around the globe remained weak for the third quarter. More than 60% of consumers said it was not a good time to spend, and one in three North Americans said they have no cash to spare.

According to research firm Nielsen, economic concerns and job security were people's biggest concerns in the third quarter, besides qualms concerning rising inflation.

The Foolish bottom line
Though Revlon has managed to keep revenues as steady as possible, weak consumer spending could hurt companies like it for the coming months if the economy does not improve. To stay up to speed with the latest developments for Revlon, you can add it to your very own personalized watchlist. It's free and helps you keep up with the latest news and analysis for your favorite companies.

At the time this article was published Fool contributor Keki Fatakia does not own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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